Is Grad Student a Dependent or filing her own return because she is living off student loans?

[Husky Bean]

My 22 yr old daughter is the 5th year of Pharmacy Program. She earned $9,400 while going to school.  She paid for most of her living expenses with Student Loans totaling $33K?

Also in 2020 she will be doing unpaid student rotations and will live various places with at 4 months at home.   She will be using loans to cover some of her expenses.  Will she be a dependant this year?

[Hal_Al · Accepted solution]

Simple answer:  filing her own return because she is living off HER student loans. She cannot be your dependent, if she provides more than half her own support.  It's unlikely that you provided  $42,400 (33000 + 9400) of support.

However, if you co-signed the loans (or the loan is in your name), the support is not considered her own support and you can claim her as a dependent. 

[Carl]

Three things not clarified here.

1) There is no requirement what-so-ever for the parent to provide the student any support. Not one single penny. The support requirement is on the student, and only the student.

2) The student's earnings do not matter. When all other requirements are met, the student could earn a million dollars (literally!) and still qualify as a dependent on the parents' return.

2) There are only two possible ways the student can provide more than half of their own support.

   a.) The student is self-employed or has a W-2 job and earned enough money to justify a claim to providing more than half of their own support, and that earned income is more than all third party income received from all other sources. (scholarships, grants, 529 distributions, etc.)

   b) The student is the *PRIMARY* borrower on a "qualified" student loan, and sufficient funds were distributed during the tax year to justify the student's claim to providing more than half of their own support. THe amount distributed would also need to be more than the total of all third party income received by the student in the tax year too. (scholarships, grants, 529 distributions, etc.)

The IRS considers support to be the *REASONABLE* costs of:

 - Housing (rent and utilities)

 - Qualified education expenses of tuition, books, lab fees. (that's it with no exceptions)

 - Food

 - Clothing

 - Transportation

 - Entertainment

Overall, if the student is the pimary borrower on those loans and they are qualified student loans, it looks to me like the student provided more than half of their own support, and can prove it if audited.